The Battle for Online Retailing Supremacy in India

Posted in Operations & IT Articles, Total Reads: 1134
, Published on 06 February 2015

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On February 2014, the global analytical company CRISIL came out with a report on the on line retail sector in India. According to it, in the financial year that ended on March 31, 2013, on line retailing companies in India earned revenues of around 139 billion rupees ( USD 2.24 billion). Pretty impressive figures, indeed. Then came the dampener – This amounts to just 0.5 % of the revenues of brick and mortar retail companies in India. So one may be tempted to ask – ‘Why the huge buzz about e-retailing?‘.

Image Courtesy: freedigitalphotos.net, bplanet

The answer lies in the huge growth rate of e-commerce firms – they showed a CAGR of 56% during the period of 2008-13 – as well as the operational issues that brick and mortar retailers experience such as high rentals and limited real estate options. In fact, of the top 100 commercial brands in India, nearly 70 % already have some online presence and it is predicted to reach 100% by next year. With the internet users in India expected to cross 500 million by 2015 and the revenues of e-retailers set to triple by reaching USD 8.13 billion (CRISIL report) in the next three years, there is no option of ignoring the e-tail sector.

According to a survey by retail advisory firm Techno park, electronics accounts for 30 percent of the Indian online retail market where as fashion and life style constitute 25 percent. Research conducted by the Department of consumer affairs revealed that overall convenience, range & availability of products and lower prices were the highest rated factors that caused consumers to shop on line and the major players have been relentless in providing a better customer experience.

The competition among e-tail giants for a larger slice of the Indian market has always been fierce, but it has turned in to an all-out war in recent months. The biggest news came on May 22, 2014 when Flipkart announced the acquisition of Myntra, India’s largest online fashion retailer for a reported sum of USD 300 million in May. With no current plans to combine the fashion businesses of the two portals and with the announcement that Myntra would operate independently, the acquisition seemed to be a strategic move on the part of India’s largest e-retailer to counter the aggressive overtures of Amazon in to the Indian market. Acquisition of Myntra is set to capture an estimated 50 percent of the market by giving Flipkart a better foothold in the apparel sector and the figure is expected to rise in the coming years. Flipkart hit a gross merchandise value of USD 1 billion in March 2014 – the first for an Indian retailer over a period of 12 months –which was a year earlier than the company estimates and is expected to close the year with sales of USD 3 billion. Founded as a seller of books and music CDs, Flipkart, now considers apparel and footwear as its fastest growing areas and ships around 1.3 lakh products a day at peak times.

Soon, Flipkart announced that it had raised USD 1 billion from investors like Naspers, Tiger Global Management and GIC only to be trumped by Amazon in under a week with an announcement of its own to spend USD 2 billion to develop its business in India. Amazon further made its intent clear by reducing prices, adding new product categories and investing in a huge advertising campaign. In fact, acquiring single category companies in segments like baby care and furniture is expected to become the target for Amazon which has vast sums of money to spend. Amazon has also focussed on becoming more merchant friendly, allowing merchants to sell their wares on the same day that they register on Amazon’s portal compared with the nearly two weeks it takes on competing firms. The company’s latest delivery service – ‘easy ship’ ,which allow all sellers the option of asking for their product to be picked up and shipped by Amazon in addition to providing cash on delivery for the seller orders , is seen as an aggressive move to put pressure on its competitors. Amazon’s ‘in a day delivery service’ move had forced Flipkart and Snapdeal to follow suit last December. At current growth rates, Amazon is expected to cross sales of USD 1 billion by March 2016, reaching the target in three years compared to Flipkart’s seven.

Fast growing Snapdeal, India’s second largest on line retailer by sales, too flexed its muscles and raised USD 233 million from its investors, which ironically involved eBay – another player set to ramp up its Indian operations. Rohit Bansal’s Snapdeal is currently neck and neck with Amazon, with both companies having sold USD 600 million worth of products this year so far. Snapdeal is set to launch a launch a specialised handicraft store dealing in jewellery, apparel and furnishing. Also set to launch specialised stores like wedding stores, it is investing in technology to develop innovations like a virtual trial room. Snap deal has continued its reliance on small manufacturers as it plans to focus on the mid-level consumers as well.

Myntra’s biggest competitor in the fashion segment, - Jabong, had already raised USD 27.5 million from UK based CDC in February and is planning to raise a total of USD 100 million in the near future. Jabong recently announced its plans to modify its supply chain by employing a ‘next door service’ where customers in rural areas without proper road connectivity can pick up their orders at the nearest coffee shop, petrol station or tour operator. Jabong, which gets about 50 percent of its revenue from non-metro centres is banging on an expected 15 to 20 percent rise in sales once the pick-up services scale up.

The field is going to get a lot murkier in the future. With hopes of a quick public listing getting slimmer for Indian e-tailers, risk capital investors are expected to step back while sovereign wealth funds including Singapore based Temasek (Snapdeal) and GIC(Flipkart) are expected to retain its prominence. But more players are coming in – Giants like the Reliance group, who sells products ranging from footwear to jewellery , has the resources to enter the race. In fact , Reliance group was formerly an investor in Fabmart, India’s first ever online retailer. Aditya Birla group which acquired the current incarnation of Fabmart - the Fabmall grocery supermarket chain has been touted as another possible entrant, not to forget Wipro chairman Azim Premji, who has already invested in both Snapdeal and Myntra and Infosys co-founder Narayana Murthy, whose Catamaran has floated a joint venture with Amazon.

All said and done, Amazon seems to be in pole position to dominate the Indian e-tailing sector in the long run. Unable to displace industry leader Ali Baba in the estimated USD 180 billion strong Chinese market, Amazon founder Jeff Bezos has turned his sights on India, redirecting its resources on the infant e-retail segment. After entering the market last July, Amazon has actively invested with expansion in to more than 20 categories including fashion and life style products. Its strong backend infrastructure which enables Amazon to scale up fast is believed to give it the edge over the other players in the market .With many of the Indian e-tailers swallowing each other up as in the case of Ink fruit(bought by Zovi), Lets buy(Flipkart) and Stylishyou(Yebhi), Amazon – with its vast resources - might just be the great white shark lurking to swallow up the remaining players in the market.